Gem Diamonds Sells Ellendale Mine for $15M

RAPAPORT... Gem Diamonds has sold its Ellendale mine in Australia to Goodrich Resources for $14.9 ‎million (AUD 14.3 million), the companies announced Monday.‎

‎"The sale of Ellendale, at a value that we feel is appropriate given the relatively short ‎life ‎of mine of the E9 pipe, is consistent with our aim of refocusing our management ‎and ‎capital resources on our core assets and long term growth projects,” said Clifford ‎Elphick, the chief executive of Gem Diamonds. ‎Ellendale has approximately 18 months of production remaining, according to the current ‎mine plan and reserve estimate; but Alex Alexander, the chairman of Goodrich, stressed that the ‎company intends to carry out an aggressive exploration program to increase the ‎reserve and life of the mine. ‎

Gem Diamonds is currently mining the E9 pipe, while the E4 pipe is on care and ‎maintenance. Goodrich reported that an additional 47 lamporite pipes exist on the Ellendale ‎property, half of which are thought to be diamond-bearing. Production at the mine ‎rose 42 percent year on year to 120,561 carats in the first nine months of 2012, while ‎sales increased 46 percent to $83 million. Sales included the off-take agreement with ‎Tiffany & Co. for Ellendale’s fancy yellow diamonds, which account for about 80 percent ‎of revenue from the mine, according to Goodrich. ‎

Under the agreement, Goodrich, an Australia-based exploration company, will acquire Gem Diamonds subsidiary Kimberley ‎Diamonds, which holds the Ellendale lease. An initial payment of $3.2 million (AUD 3.1 ‎million) will be rendered, while the remainder will be paid in 12 monthly installments from the ‎completion of the deal, expected in January 2013. ‎

Analysts at Liberum Capital Mining said the deal was good for Gem Diamonds ‎given that the market values Ellendale at zero or less due to the rehabilitation costs ‎expected when the mine closes in a few years’ time. Liberum added that the deal enables ‎management to better focus on its Kholo expansion project at Letšeng and its Ghaghoo ‎mine development in Botswana. ‎

Gem Diamonds announced in November that it was extending the implementation of the ‎Kholo project’s development schedule due to the weak economic environment. The ‎company revealed Monday that the revised plan will still go ahead with development on ‎plant 1 and plant 2, while development of the third plant has been placed on hold. ‎‎ ‎‎“The revisions to project Kholo at Letšeng, as a result of the rescheduling of capex, ‎allows Gem Diamonds to execute the project in a more appropriate manner taking into ‎consideration the current financial climate,” Elphick said. “We continue to see sound ‎fundamentals supporting the long term strength of the diamond market which support our ‎continued investment into our key growth projects.”‎

Shares of Gem Diamonds were down less than 1 percent at 160 pence in early morning ‎trade on the London Stock Exchange.‎